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How to Form a Delaware Corporation

How to Form a Delaware Corporation

When you form a corporation, your personal assets are protected from liability for your business’s financial obligations. A corporation may also help to protect your personal assets if someone sues a corporate employee. Forming a corporation may also result in tax benefits.

Many large corporations choose to incorporate in Delaware because the state is known for having well-developed, business-friendly corporate laws. Small-business owners in other states who are considering incorporating in Delaware may want to weigh any potential advantages against the additional cost of being incorporated in one state while doing business in another.

Requirements for Incorporating in Delaware

Preparing Your Certificate of Incorporation

A Delaware corporation exists as soon as you file its certificate of incorporation with the Secretary of State. To form a corporation, you must mail or fax a certificate of incorporation and a cover sheet to the Secretary of State’s office and pay a fee. The articles of incorporation must include the following:

Name of the corporation

Corporate purpose

Details about the corporation’s stock structure

Registered agent

Names and addresses of incorporators

Stock Structure

A corporation can have different types of stock, called classes or series. These types of stocks can have different advantages, for example one can offer voting rights while another may not. The corporation’s Certificate of Incorporation must meet the following requirements in regards to stock structure:

If there will only be one class of stock, the certificate of incorporation must state the total number of shares authorized. It must also list the par value of the shares or state that there is no par value.

If there will be more than one class of stock, the certificate of incorporation must list the following additional information:

The certificate must state the total number of shares, the number of shares in each class and, for each class, the par value of the shares or that the shares have no par value.

The certificate also must list the designations, powers, preferences, rights, qualifications, limitations and restrictions applicable to each class or series of shares. Alternatively, the certificate can state that the board of directors will determine these matters.

Before submitting your certificate of incorporation, you can determine if your proposed corporation name is available by conducting a search on the Secretary of State’s website. You may reserve a business name for 120 days by submitting an application online or in writing to the Secretary of State. Your corporation name must meet the following requirements:

Your corporation’s name must include one of these words: “association,” "company," "corporation," "club," "foundation," "fund," "incorporated," "institute," "society," "union," "syndicate" or "limited," or the abbreviation of one of these words.

Your corporation’s name must be distinguishable from the name of any corporation, limited liability company, partnership, limited partnership or statutory trust on file or reserved with the Secretary of State, unless the party currently using the name consents in writing.

Specifying Incorporators

An incorporator’s primary role is to file the certificate of incorporation. The incorporators’ names and addresses must be listed on the certificate. When specifying incorporators, you must adhere to the following requirements:

Your corporation must have at least one incorporator.

An incorporator may be a person, corporation, partnership or association. The incorporator does not have to reside or be incorporated in Delaware.

If the certificate of incorporation does not name initial directors, the incorporators must hold an organizational meeting to elect directors. They may also approve initial bylaws and do whatever else is necessary to manage the business until the directors are chosen. Once directors are named, the incorporators have no further role.

Specifying Directors

Corporate directors determine corporate policies and strategies. They are also responsible for managing the business of the corporation, though they often delegate day-to-day management to the officers. When specifying directors, you must meet the following requirements:

There must be at least one director.

There is no maximum number of directors, but the number of directors should be stated in the certificate of incorporation or bylaws.

A director must be a person, but a director does not need to own stock in the corporation. The certificate of incorporation or bylaws may include additional limitations on who can serve as a director.

Specifying a Registered Agent

A registered agent is a person or entity that a corporation designates to receive legal documents on behalf of the corporation. The registered agent is responsible for forwarding those documents to the corporation.

Every Delaware corporation must have a registered agent that has an actual street address in Delaware.

A registered agent may be an individual who resides in Delaware or a business entity that is authorized to do business in that state.

A corporation may act as its own registered agent if it is physically located in Delaware.

The Secretary of State’s website has a list of Delaware registered agents.

Stating a Corporate Purpose

You can state your corporation’s purpose in general terms to allow flexibility in case the nature of your business changes over time. Under Delaware law, it is sufficient to state that “the purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.”

Determining Incorporation Bylaws

A corporation’s bylaws are its internal rules and operating procedures. They are not filed with the Secretary of State. Bylaws may include any provisions relating to the business and affairs of the corporation or the rights and powers of the corporation and its directors, officers, shareholders and employees.

Your corporation bylaws must meet the following requirements:

The incorporators or directors must approve initial bylaws.

Bylaws cannot include anything that is inconsistent with the law or the certificate of incorporation.

Costs of Incorporating in Delaware

The Delaware Secretary of State requires a fee when filing a certificate of incorporation or reserving a corporation name. Corporations are also required to pay state and federal income taxes and a franchise tax.

How do you decide what's best for you? Last wills and living trusts can accomplish similar objectives. Whether a living trust is better for you than a will depends on whether the additional options it provides are worth the cost. Get the details on both so you can choose what's best for you and your family.

You know having a last will is important—it protects your family and provides for your final wishes. Now that you're finally sitting down to write that will, be on the lookout for these common but easy-to-avoid mistakes.

Do you know the top 3 ways that you can avoid probate? Maybe yes or maybe no. Either way, here is a short primer on some great ways to give less to Uncle Sam and keep more of your estate in the hands of the people you love most.

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